This paper presents a simple counterexample to the belief that policy cooperation among benevolent governments is desirable. It also explains circumstances under which such counterexamples are possible and relates them to the literature on time inconsistency.

描述:

Versions of this report were published under the titles “International Policy Cooperation May Be Undesirable” and “Policy Cooperation Among Benevolent Governments May Be Undesirable.”

This paper presents a simple counterexample to the belief that policy cooperation among benevolent governments is desirable. It also explains circumstances under which such counterexamples are possible and relates them to the literature on time inconsistency.

描述:

Versions of this report were published under the titles “International Policy Cooperation May Be Undesirable” and “Policy Cooperation Among Benevolent Governments May Be Undesirable.”

A model with private information is constructed that supports conventional arguments for a government monopoly in supplying circulating media of exchange. The model also yields predictions, including rate-of-return dominance of circulating media of exchange, that are consistent with observations from free banking regimes and fiat money regimes. In a laissez faire banking equilibrium, fiat money is not valued, and the resulting allocation is not Pareto optimal. However, if private agents are restricted from issuing circulating notes, there exists an equilibrium with valued fiat money that Pareto dominates the laissez faire equilibrium and is constrained Pareto optimal.

We describe a simple environment in which assets of varying qualities may be used for transactions and consumption. The quality of an asset is known to the seller but not the buyer. We show that this feature can generate a negative relationship between the transactions velocities of assets and their rates of return. We also discuss several versions of Gresham's Law which hold in this environment.